On Monday, we made a few headlines in the financial press with our out-of-consensus prediction that the FOMC would adopt a tightening bias at the June meeting of the Fed's policymaking committee. That would be followed by a 25-bps hike in the federal funds rate (FFR) at the July FOMC meeting. Today, the minutes of the April FOMC meeting showed that the vote to maintain an easing bias was close. There was considerable support for dropping it and adopting a tightening bias. Changing to a neutral stance wasn't seriously discussed.
Treasury bond yields fell this morning before the minutes were released in the afternoon. The 2-year yield edged down to 4.04%, still signaling that a 25bps cut in the FFR is likely soon (chart).
The 10-year yield fell back below 4.60%, an important level from a technical perspective (chart).
The pullback in yields was triggered by a slide in oil prices, with Brent crude dropping more than 5% to $105 per barrel (chart). The selling pressure on crude reflects escalating market optimism surrounding the US-Iran peace negotiations, which reports suggest have entered the "final stages," alongside comments from President Donald Trump indicating he expects the conflict to wrap up quickly.
Also helping to calm the Bond Vigilantes was April's FOMC minutes, which were unexpectedly hawkish. If the Fed is going to be more vigilant about the latest inflation problem, then the Bond Vigilantes can be less so.
